Compensation refers to the payment given to people for the work done. It can be in the form of finances through the remuneration of workers or damages as a result of injuries incurred during work. The compensation package therefore can be direct or indirect. In every organization, compensation is a very important aspect in the establishment of a good relationship between the organization and the workers. This is why in every successful organization there is a well established and managed compensation system. For any compensation system to be successful, it should be able to cover the moral, social and psychological effects of the workers involved. Compensation is one of the workers’ benefits that go beyond the economic value of their involvement in the organization (Bloom, 2004). Compensation is holistic in nature because it tries to accord the employees fairness in terms of trust, ethics and work relationships. This in turn affects the employees in the organization through their commitment to their work or duties, performance levels and relationship with the employers.
Compensation system is known to bring about a considerable positive effect on the organization’s labor output in terms of the economic exchanges. This is whereby through the remuneration of the workers their output in terms of the labor they put in the organization is highly increased (Bloom, 2004). Compensation also plays an important social role through the strengthening of the relationship between the employers and their employees. This in turn contributes to a rise in the output of the employees. In addition, the commitment of the employees to their work is increased. This is because of the fact that all the employees have great passion to work and very confident that even if they work overtime, they will be handsomely compensated for the extra work done for the organization. Compensation also increases the trust the employees have towards their employer. Employees are thus able to work well without any form of doubts (Bloom, 2004).
It should be noted that the attitude and behaviors of the workers are greatly influenced by the pay they are given in comparison with the work they do for the organization. This is because their satisfaction means an increase in their output for the organization they work in (Rynes & Barry, 2001). An organization that for instance has a stable payment system is never likely to lack efficient workers. This is because the workers are sure that no matter what happens, in case they get involved in some extra activities, they will be compensated for it. On top of that, the organization that is gender sensitive in terms of equality is also likely to gain a lot of trust from the workers. It is obvious that any one will want to work for an organization in which his or her values are completely or almost similar to the culture of their organization of interest. Through a compensation system, the culture of that particular organization can easily be identified. In turn this can either attract people to that organization or repel them (Reschovsky, Hadley & Landon, 2006). This means that the compensation system of a particular organization can greatly impact the number of applicants interested in working for that particular organization.
The issue of compensation can also contribute to crises in an organization. This can happen when the workers are not fairly treated. It is not fair when they offer their services but the organization fails to adequately reward them for their services. In addition to that, if they are also not fairly rewarded like they deserve, it means that they cannot work with their full attention focused on their job (Reschovsky et al., 2006). As a result, the company will operate at a loss due to decreased work output. The issue of poor compensation is also a major cause of most of the workers’ strikes that occur in most of the organizations (Rynes & Barry, 2001).
Medical compensation is another form of compensation that is very important to the performance of any organization. Medical compensation is especially critical in the event of an accident or illness suffered by employees. Any worker who gets injured while on duty must be compensated. By doing that, the rest of the workers as well as the aspiring ones are encouraged to work in that particular organization without the fear of injuries and hospital bills. In addition, an organization that offers paid leaves to its employees is found to have a better employer-employee relationship. Since compensation is seen by the employees as the payment or a reward offered to them as a result of their excellent skills and a reflection of their abilities, then it may encourage the rest of the workers to get more training in their field (Rynes & Barry, 2001). This is not only beneficial to individual employees but also to the organization because more training of the workers means increased employee productivity and improvement in the quality of employees’ work. All these ultimately enhance organizational performance.
In conclusion, compensation plays a significant role in any organization. Compensation enhances the productivity of the workers by motivating them to put more efforts in their work and increasing their commitment to the organization. It also strengthens the relationship between the employees and their employers because employees feel that the employers are concerned about their welfare. Compensation also gives an organization a good image in the eyes of the public. However, for these positive effects to be realized the employees must perceive the compensation system as fair and just to all.
Reference List
- Bloom, M. (2004). The ethics of compensation systems: Journal of Business Ethics, 52(2), 149-152.
- Reschovsky, J., Hadley, J., & Landon, B. (2006). Effects of compensation methods and physician group structure on physicians’ perceived incentives to alter services to patients. Journal of Health Service Research, 41(1), 1200-1220.
- Rynes, L., & Barry, G. (2001). Compensation organization (12th ed.). Chicago: University of Chicago Press.